Govt wants Gail to exit petrochemical business: Dharmendra Pradhan

Posted on August 29, 2018

Petroleum Minister Dharmendra Pradhan said on Monday that the government wants state-run Gail (India) to exit its petrochemical business.

On the other hand, contrary to the earlier reports of hiving off the company’s marketing division, the Gail board is planning to have marketing and pipeline segments to be “independent and autonomous with separate balance sheets”.

“The Gail board has approached the government saying that they are working on a similar proposal to have separate segments for pipeline and marketing. We want Gail to exit petrochemical business gradually and focus on its core area that is pipeline,” Pradhan said.

Under the Petroleum and Natural Gas Regulatory Board Act, marketing and transmission functions should not be performed by the same entity, so that there is no conflict of interest. This is so especially because companies like Gail are in a position to push their gas on priority, given that they also run pipelines as transmission entities.

Following the legal requirement, Gail did not spin off its marketing business but decided to maintain a split of its business and accounts for marketing and transmission businesses. “Gail’s focus on pipeline business is required as around 30 million metric standard cubic meter per day (mmscmd) of natural gas is off-grid now due to lack of pipeline network. At the same time, we want Gail to be more aggressive on marketing too,” Pradhan added.

Currently, Gail has a pipeline network of close to 11,400 kilometres with a capacity of around 220 mmscmd.

Interestingly, Pradhan’s statement comes as a big blow to the company that was expanding its footprint in the petrochemical business. Gail currently has a gas-based petrochemical complex at Pata, near Kanpur in Uttar Pradesh, and has 70 per cent equity in joint-venture company Brahmaputra Cracker and Polymer Limited (BCPL) in Dibrugarh, Assam. The company also has equity in ONGC Petro Additions Limited’s greenfield petrochemical project at Dahej.

Gail and Hindustan Petroleum Corporation were also working on setting up a grassroot petrochemical refinery in Andhra Pradesh. However, Gail Chairman and Managing Director B C Tripathi indicated that the company will not be able to ignore the marketing division as it is a major revenue spinner.

Pradhan said that the government is also working on the creation of a National Gas Hub, which would be a trading place for gas at market-determined price. The ministry of petroleum is set to approach the Cabinet soon with this proposal.

On Monday, Gail launched an online portal to facilitate the transparent booking of common carrier capacity of natural gas transmission. Both gas traders and consumers were availing of the pipeline transmission services as third-party users of capacities in Gail’s pipeline network. In 2017-18, around 33 per cent of Gail common carrier capacity was used by third-party users.

Meanwhile, the Petroleum and Natural Gas Regulatory Board has said that it is working on the tenth round of city gas distribution (CGD) bidding. This comes after successful allocation of 78 geographical areas (GA) in the ninth round that ended early this month.